Vanguard’s ETF gains approval to trade in HKSE. Perhaps SGX next? | Investment Moats Skip to Content

Vanguard’s ETF gains approval to trade in HKSE. Perhaps SGX next?

I got news from Andrew Hallam’s blog that Vanguard, the US investment company has gain approval to trade a selected group of ETFs in HKSE.

This is big because if  you would want to form a portfolio of low-cost index ETF, your best bet is to go for the non profit investment management company that’s objective is to minimize costs and create products that benefit investors.

Vanguard was started in the 1970s by John Bogle, well known for being a fierce advocate of passive index investing.

Last year, we covered over here that Vanguard attracted more money than many of its competitors, meaning more are starting to realize the benefits of passive index investing vesus active investing.

No withholding dividend tax

While investors in Singapore can purchase Vanguard ETFs listed in US stock market, the main peeve are currency fluctuations and a 30% withholding tax on dividends.

The withholding tax means that it is unwise to go for a ETF that distributes large amount of dividends such as preference shares ETF, REIT ETF, Utilities ETF, Dividend Aristocrat ETF or High Yield Emerging Markets ETF

The advantage of HKSE is that based on my information and accounts from past readers, there are no withholding tax on dividends.

The downside is that we do not know what ETF will be listed, but I guess it is usually the most common ones which are unlikely to be high dividend based ETF.

SGX a possibility

This gives further support for investors locally to see if they will eventually be listed  in SGX.

The main problem is that ETF in Singapore are so illiquid and you may pay a spread premium which wouldn’t be very cost efficient.

The justification to list in Singapore increases when you view the country as a country that is a wealth management hub and high net worth individuals.

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Bure45

Tuesday 5th of November 2013

Hi Drizzt, and all, has anyone traded US tracking ETFs like SPDR S&P 500 (S27) on SGX (say, via Vickers)?

Does the US withholding tax of 30% apply? If not, what is the tax, if any?

If the withholding tax does apply to this case, are there any alternatives - perhaps different ETFs tracking the same index, like K6K?

Kyith

Wednesday 6th of November 2013

Hi Bure45, i know that the ETF that you mentioned are very very thinly traded and therefore not advisable to be used.

It depends on where the ETF is incorporated. If the ETF is incorporated in Singapore, then most likely there will be no withholding tax on the ETF level.

Clarence

Tuesday 14th of May 2013

If I remembered correctly, the 30% withholding tax on dividend still applies. Can't remember where I got the info from thou.

serendib

Monday 13th of May 2013

Hi Drizzt, I think a non-US-listed ETF holding US-listed stocks can effectively get around the 30% WHT - any dividends from the underlying US-listed stocks will still be subject to the US WHT - I would love to be proven wrong!

I think a definite benefit of owning the ETF outside of the US is that you can avoid US estate duty - see Wilfred's post here:

http://www.wilfredling.com/content/view/316/9/

cheers

serendib

Tuesday 14th of May 2013

Ooops, I meant I "I don't think"

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